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Europe Insurers Shift Focus
Life Operations
Are Expanded in Bid
To Protect Profits
By GORAN MIJUK
June 30, 2008; Page C5

ZURICH -- With prices for property and casualty insurance expected to continue falling this year, some European insurers and reinsurers are boosting their life-insurance operations and could pursue takeovers to protect premium growth and profits.

Some life-insurance markets, especially in emerging Asian economies, promise double-digit growth rates because of rising demand for life savings products from increasing numbers of affluent people. As growth for other insurance business is expected to remain sluggish in mature markets like the U.S. and Europe, analysts also expect more takeovers and business tie-ups.
[Jacques Aigrain]

NOTE: LIFE INSURANCE IS INDEED A NEED MAY IT BE IN TIMES OF CRISIS.

World-wide nonlife premiums fell 0.3% last year, while life premiums rose 4.7%, according to data from Swiss Re, which said the trend is expected to stay in place. In Russia, life-premium volume jumped 30%.

Some industry executives and analysts warn that because of a mass move toward emerging markets, growth rates may be less pronounced than expected. Many also caution that large takeovers may be the wrong avenue to boost growth because of the high cost of capital.

"The efforts to increase the life-insurance portfolio by insurance and reinsurance companies are certainly positive," says Rene Locher, a Zurich-based insurance analyst for Sal. Oppenheim. "But the move toward life insurance alone won't be able to fully compensate the fall in prices in the nonlife sector."

NOTE: RENE LOCHER IS A RESPECTED PERSONALITY IN THE INSURANCE INDUSTRY.

Swiss Re, the world's largest reinsurer in terms of premiums, is shifting focus to life, saying that prices for other insurance, especially in mature markets, are falling. Reinsurance companies provide insurance to insurers, in exchange for a fee.

"We are allocating our capital efficiently to the lines of business with the best return, for example in the life sector," said Swiss Re Chief Executive Officer Jacques Aigrain. He noted that Swiss Re has substantially reduced its exposure to insuring business risk and is now allocating more capital to life-insurance businesses, including those focused on retirement planning.

Companies and analysts say that while life insurance premiums will increase, other insurance and reinsurance prices will weaken fast this year after rising for several years. Besides fierce competition, a weakening economy in the U.S. and in Europe is also expected to put pressure on premiums this year.

Still, emerging markets make up only about a tenth of all the insurance business in industrialized markets. General annual life and nonlife premiums in industrialized countries stood at around $3.6 trillion at the end of 2007, compared with $414 billion in emerging markets.

Hannover Re, which ranks third in premium income among the world's largest reinsurers, after Swiss Re and Munich Re, also hopes that its growing life reinsurance business will help it increase profit this year. CEO Wilhelm Zeller said in June that the company expects to see "double-digit growth" in premiums and net profit from its life and health businesses. The company hopes to boost its life business by 12% to 15% this year, offsetting weak premiums in other businesses, which are expected to shrink by around 5% compared with last year.

French reinsurance company Scor SA also sees strong growth, with less volatility, in the life insurance sector, CEO Denis Kessler said Thursday.

But as the natural growth of business is likely to be too slow, insurance analysts also expect companies to engage in some mergers and acquisitions, although risks will be high given current market volatility.

At Swiss Re, Mr. Aigrain said the company isn't planning any big takeovers but is looking at buying life insurance portfolios from other insurers.

Zurich Financial Services, whose profit depends predominantly on its nonlife business, is believed to be a frontrunner in bidding for Royal Bank of Scotland Group PLC's life and nonlife insurance business. Zurich Financial has repeatedly declined to comment on the market speculation.

The financial market hasn't reacted well to Zurich Financial's presumed interest in the RBS unit, though, fearing that it might pay too much and have to raise new capital. Since the beginning of May, when the Swiss insurer was mentioned for the first time as a possible bidder, its stock has fallen around 20%.

Still, Zurich Financial says it sees growth opportunities in all insurance sectors. "It's not a matter of pitting general insurance against life insurance, since we see attractive opportunities in both", said Zurich Financial Chief Financial Officer Dieter Wemmer Thursday.

Write to Goran Mijuk at goran.mijuk@dowjones.com
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